Insurance firms help flooding victims mop up. They also make flooding worse

• Insurers benefiting from Flood Re, which improves availability of flooding insurance, are providing cover for coal mines and gas terminals

• Four Flood Re insurers, including Aviva, have $20bn invested in coal, oil and gas companies

• Responding to the revelations, cross-party MPs called for reform of the government and industry scheme

Climate change is bringing extreme weather to the UK. Thunderstorms at the end of a scorching summer have caused flash floods and the country is now bracing for a season of potentially devastating rainfall. While homeowners could face the trauma of fishing their belongings out of foul-smelling water, they may be stunned to find the insurers helping them mop up are fuelling the climate crisis.

Major insurance companies are protected from flooding losses by a government and industry scheme paid for by everyone in the UK who insures their home. We can reveal that some of those same insurers are underwriting and investing in coal, oil and gas projects that are driving catastrophic climate change. MPs from across the house and campaigners are understandably furious.

Allianz, Axa and Zurich are among major insurers in the Flood Re scheme also providing cover to environmentally ruinous projects. The biggest players in the programme, such as Aviva, also have billions of dollars invested in coal, oil and gas companies. Scientists are clear that burning fossil fuels drives climate change, which causes more and more extreme weather events.

Adrian Ramsay, Green MP and member of the Environmental Audit Committee, said: “Insurers cannot take money from a government-backed scheme designed to protect people from flooding, while actively financing the fossil fuel expansion that makes those floods worse and more frequent.

“Government must use the ongoing reform of Flood Re to make sure insurers benefiting from public-backed flood cover aren’t simultaneously fuelling the crisis behind it.”

Chris Hinchliff, Labour MP for North East Hertfordshire, said it was “mind-boggling” that insurers who face huge liabilities due to increasing flood risk were investing in activities that could “collapse their entire business model”.

The news comes as finance and insurance experts, together with the campaign group Mothers Rise Up, publish an open letter to the government and regulators, demanding reforms to the Flood Re scheme.

A raging torrent

Heather Shepherd lives outside Shrewsbury near the junction of two rivers that regularly overwhelm their limited flood defences. “You can hear it in the house,” she said. “It sounds like a raging torrent, and you know that is heading towards you. It’s really quite scary.” When the water reaches her home, it starts trickling in. “It just keeps slowly rising and rising. You daren’t go to bed.” Heather then faces several days of wading through dirty water in her own home.

She is just one of 11.3m people in the UK that the Environment Agency estimates live in areas at risk of flooding – a figure expected to grow as temperatures continue to climb. A warmer atmosphere holds more moisture, causing heavier downpours and more flooding.

Heather’s insurance premiums rose dramatically post-flood but she can still get cover backed by Flood Re. The government and industry scheme creates a pot of money with a levy on every UK home insurance policy. Insurers that choose to take part can use that money to cover claims from floods. Flood Re estimates that it backs 353,000 insurance policies across the country.

The project’s aim was to stop insurers abandoning swathes of the country that regularly flood. People rejected for insurance on their homes can’t easily sell them, making Flood Re a vital tool to avoid a housing crisis.

Heather Shepherd’s home after flooding

For Heather, the introduction of Flood Re was a “massive relief”. But she is horrified that insurers benefiting from the scheme are exacerbating climate change.

“It’s horrendous,” she said. “While their losses are being covered, they’re becoming a softer voice as well. We need the strength of insurance companies to push government to be more proactive around climate change.” Instead, some appear to be backtracking on their own green pledges.

Using Freedom of Information requests, we found evidence of Flood Re insurers moving back into coal – the most polluting fossil fuel – and supporting the construction of new gas terminals in the US.

Backtracking and bankrolling

If companies cannot secure insurance cover, they have little hope of raising funds for or progressing their projects. That makes insurance companies a key enabler of the industries they choose to support.

Zurich, a Flood Re insurer, seems to recognise this crucial role. It states baldly on its website that there must be a “steep reduction” in the use of fossil fuels to avoid floods, drought and species extinction, and so promises not to provide insurance for companies that earn more than 30% of their revenue from coal mining.

A clause in its policy, however, states that this does not apply to insurance to cover claims made by workers, or coal used in the manufacture of iron or steel. This appears to have opened a loophole that means a Zurich subsidiary has been able to provide cover for workers’ compensation to Signal Peak – the operator of a coal mine in Montana in the US, which has approval for a massive expansion. Local residents say the mine has already diminished water sources, killing off wildlife and driving ranchers from their land.

Further south are the vast, open-cast pits of the Belle Ayr and Eagle Butte mines in the Powder River Basin – where mining threatens the habitats of elk, antelope and mountain lions. Zurich started covering workers’ compensation at both mines this year and continues to provide insurance for a metallurgical coal mining firm operating in West Virginia, deep in American coal country. A subsidiary of this company has been accused by campaigners of poisoning communities with carcinogenic dust by blasting nearby land.

Zurich declined to comment on our findings.

Tractors at Eagle Butte coal mine in the Powder River Basin, Wyoming, November 12, 2021

Salwan Georges / Washington Post via Getty

Other Flood Re insurers provide cover for US coal miners despite earlier promises not to. Campaigners celebrated a major win when Lloyd’s of London – the world’s largest insurance corporation – promised to stop covering thermal coal from January 2022. But it is understood that it swiftly dropped that idea.

We found Lloyd’s insurers providing cover for the Antelope mine in Wyoming, which is expanding to extract millions more tonnes of coal; as well as neighbouring North Antelope Rochelle – the world’s largest coal mine, which has enough reserves to generate more carbon dioxide than the entire European Union does in a year.

Chubb, meanwhile, was the first group with significant US operations to turn its back on the coal industry in 2019. But we found one of its subsidiaries continues to provide cover for the Buchanan coal mine in Virginia.

As well as coal, the Trump administration is accelerating the expansion of gas. Experts say the gas terminals being built along the Gulf coast represent one of the biggest threats to the future of the planet. They too have secured insurance cover from Flood Re insurers. Brit Insurance, Axa, Allianz, Zurich and Chubb are providing cover for the Gulf LNG, Calcasieu Pass and Rio Grande terminals dotted along the coastline.

Many of the Flood Re insurers are also actively bankrolling coal, oil and gas companies. According to our analysis of data compiled by campaign group Urgewald, four Flood Re insurers – Aviva, Allianz, Zurich and Covéa – have invested almost $20bn in fossil fuels.

We found that Aviva, a major insurer in the Flood Re scheme, has singlehandedly invested a total of $15bn in fossil fuels. More than 100 of these investments are in coal companies – and many appear to breach its climate commitments.

Wera Hobhouse, Liberal Democrat MP for Bath, said the Bureau’s findings were “deeply troubling”. “Insurers have a responsibility to think about the risks they are creating, not just the risks they are insuring.”

A spokesperson for Lloyd’s told us that it operates as a marketplace for its members. “This means that we will allow market participants to insure any activity permitted by law, regulation and sanctions, that doesn’t threaten the market’s performance, balance sheet or the stability of the central fund, or create regulatory risk,” they said.

Axa told us it has been “evolving its investments in the energy sector by reducing its exposure to fossil fuels and accelerating its investments in clean energy” for more than 10 years.

Allianz said it continued to reduce its fossil fuel investments and declined to comment on client relationships.

None of the other companies in this story responded to our requests for comment.

Flood Re said it is not funded by taxpayers and there is no financial liability for the government. A spokesperson said: “Our remit is flood reinsurance. We have no role in or control over the wider investment or underwriting strategies of individual insurers.”

The Association of British Insurers, a trade body, said: “Insurers will make their own commercial decisions in line with their climate commitments. We would generally expect these to be consistent with each firm’s long-term targets and transition plans.

“However, decisions about whether or not to offer cover for energy projects will also carefully consider potential implications for workers and the local community.” It added that the industry will continue to work to support the transition to a more sustainable future.

The Calcasieu Pass LNG terminal in the US, which is insured by a Chubb subsidiary

Paying their share

Former insurance workers and the campaign organisation Mothers Rise Up are today urging the government and financial regulators to reform Flood Re to better reflect the increased climate risk caused by insurers that continue to underwrite and invest in new fossil fuel projects.

In a letter addressed to government ministers, financial regulators and the Climate Change Committee, the group said insurers covering new fossil fuel projects are taking on more risk and should therefore hold more funds in reserve to protect their financial standing. They say those insurers should pay a higher levy to Flood Re, to ensure “that those driving long-term physical risks pay their fair share toward protecting vulnerable communities”.

There were some bright spots in the Bureau’s research. We found no evidence that Aviva was insuring any of the coal and gas projects we investigated. Axa, another Flood Re insurer, has withdrawn its cover for two coal mines in North Dakota and is not providing cover for any of the other mines we investigated.

Louise Pryor, former president of the Institute and Faculty of Actuaries, the chartered body for risk experts, said this proves that “it’s perfectly possible to run a healthy and profitable insurance business without underwriting fossil fuel extraction”.

But that is little comfort for Heather, whose home first flooded in 1998 when she had two young children. “I remember standing there, looking at this devastated house and thinking, ‘Where do we go now? Do we go and sleep on the park bench?’ It brings on almighty depression.”

She is resigned to what lies ahead: “Once you’ve flooded, flooding’s permanently on your mind.”